7 Million Bad Student Loans With No Way Out, for Anyone

There are hidden costs, even when the government is able to collect the money.

One of the department’s most successful — and draconian — collection mechanisms is the Treasury Offset Program, which garnishes government payments. In 2019, the Treasury Department seized nearly $4.9 billion from tax refunds and other payments to go toward student loan debt, according to an analysis of Treasury data by the Seldin/Haring-Smith Foundation. The biggest chunk, nearly $1.7 billion, came in February — the prime filing time for people collecting the earned-income tax credit, a support measure for low- and middle-income families.

“The social safety net is intended to protect people from crushing poverty,” said Abigail Seldin, the foundation’s chief executive. “It isn’t intended to reconcile government debts.”

Many defaults, especially those that have stretched out for decades, involve murky situations that can be nearly impossible to untangle. Walter Jones, 65, wasn’t even aware that he had a loan in arrears until the government confiscated a chunk of the Social Security survivor benefits he applied for in 2018 after his wife died.

When his first checks arrived, Mr. Jones discovered that $134 of his $891 monthly payment was being withheld to pay off a $4,000 debt for a program at Sutton Business School, which closed decades ago. He had never heard of the school and insisted that he had never attended it.

In the late 1980s, when the loan was taken, Mr. Jones was in a job-training program and filled out a mountain of paperwork. His lawyer, Mr. Tyler, suspects someone forged or falsified the loan application — a tactic for which many for-profit schools have been busted. Mr. Tyler filed two applications challenging the validity of the debt; the government denied both.

Mr. Jones, an Army veteran who spent 30 years as a school bus driver but stopped working during the pandemic, finally got some breathing room when the payment freeze halted his checks’ garnishment. He’s hoping Mr. Biden will follow through on his campaign pledge to eliminate $10,000 in debt per borrower. That would spare Mr. Jones the work of further contesting his debt or enrolling in an income-driven plan, which would require him to recertify his income every year for as long as two decades.

“I don’t want to have to deal with it,” he said. “It’s depressing. Draining, too — very, very draining.”